러시아ㆍ유라시아

Main economic indicators

• GDP (2010): 54.7 bln. USD $
 

• Population: 9.48 mln
 

• GDP per capita (2010): 5,771 USD $,
 

• For comparison: Russia  – 10,437 USD $, Kazakhstan - 8,539 $
 

• Poverty rate – 5.4%,  
 

• Composition of GDP: industry: 26.7%; services: 48%; agriculture : 7.4%
 

• The main trade partnerships (commodities and services):
   - export destination : EU 30%, Russian Federation 39%
   - import origin: ЕU 22%, Russian Federation 52%

The new independent Belarusian state was created in 1991. Belarus was an advanced  republic  of the former Soviet Union. A standard of living and capital stock were the highest in the Former Soviet Union (FSU). At the same time, the Belarusian economy was quite dependent on linkages with other areas of the FSU. Belarus  imported  90 percent of its energy and 70 percent of its raw materials from FSU and this area was the main market for Belarusian export. This made Belarus very vulnerable to the significant disruptions in trade that occurred in the early 1990s.

GDP growth

GDP declined sharply in the early 1990s, while inflation soared to over 700 percent in 1995. Since 1994, the government has concentrated on the administrative regulation, while keeping the vast majority of the economy within the state property (about 70 % to GDP).
 

Since 1996, GDP growth has been positive, and the most rapid among CIS countries, while inflation remained high. Belarus had sustainable development due to favorable external conditions, strong economic growth in partner countries and subsidized imports of energy from Russia.  The prices for gas and oil imported from Russia for a long period of time were much lower than for other countries. In particular,the oil price for Belarus was almost twice lower than the world average, assuming that the oil products extracted from Russian crude oilat Belarusian plants were sold to the European market at the world prices. Thus, Belarusian economy remained vulnerable  to external shocks.
 

In 2009,the growth slowed down because of the world economic crisis. Belarus escapedthe decrease that affected  other countries of this region due to themonetary expansion and government support stipulated by large-scale state programs, which stimulated internal demand.
 

The official unemployment rate has been low for a long time as well as the official poverty rate. Nevertheless, higher salaries in Russia stimulated immigration from Belarus, especially from rural areas. 
 

Large-scale state enterprises dominate in the industry. Oil refining is one of the basic branches, providing the main share of currency receipts and budget revenues. Such mineral products as oil and potash fertilizers amounted to more than 30 % of the Belarusian export.  The private sector is rather undeveloped, and creates about 30 % of gross national product and private enterprises are concentrated basically on services. The number of small and medium-sized enterprises (SMEs) has been increasing in the recent years, however, their role in the national economy remains relatively insignificant. SMEs generate merely from 10% to 12% of GDP.

Fiscal policy 
 

Belarus traditionally conducts solid fiscal policy. The rate of government spending accounted for almost 50% of GDP that is higher than in the countries with similar per capita income. The tax burden is heavy.At the same time, it allows the government to provide a rather high level of public services and social protection. Large state enterprises have also strong state support, mainly to provide employment. Nevertheless,a high level of the state expenditure causes distortions in distribution of resources and decreases economic efficiency.Before 2009, the budget was balanced, and the total public debt amounted to about 13% of GDP, which is a very modest level compared with the world average.  However, the  situation changed during the international financial crisis, when the external demand fell and the government provided strong support forthe domestic demand trough the credit channel. As a result, budget deficit occurred, the growth of the government debt accelerated and fiscal imbalances increased.

Foreign direct investments (FDI)

The total level of FDI in Belarus is much lower than in other Eastern European countries. Before 2006, the level of FDI was miserable, but in 2007-2008 the government stimulated investments by adopting a new Investment Code. In addition, Belarusian authorities have accelerated privatization.A number of large state enterprises, such as “Beltransgaz”, several banks and telecommunication companies were privatized by foreign investors.   In the economic crises of 2009-2010, FDI that were always rather weak kept on declining.
In the recent years, the government took measures which were directed at encouraging the investment activity in the country. Creation of free economic zones and High-Tech Park (HTP) are most significant of them. In particular,a special business environment for IT businesses with tax incentives was established and IT companies were exempt from all corporate taxes, including VAT, profit, real estate, and land taxes. The individual income tax has a fixed rate of 9% for the employees of HTP companies. That resulted in a fast boost of the IT industry in the country.

Crises of 2009 and 2011

During the global financial crises of 2008-2009, the problems in Belarus were caused by the external conditions. There were two main directions: decreasing of export revenues and disruption of capital inflows. Consequently, the current account deficit has started to accrue promptly. This led to a reduction of foreign exchange reserves and a currency crisis in spring 2011, entailing a multiplicity of exchange rates, disruptions in supply of imported goods, lay-offsat import-dependent enterprises, and the acceleration of inflation (up to 90% during 10 months of 2011). Significant imbalances in the external position of the country were the outcome of deteriorating terms of energy resources trade, the total loss of competitiveness of the economy and unbalanced policy to stimulate domestic demand. Since 2007, subsidies on imported energy from Russia declined. As a result,the total factor productivity of the economy began to fall. As already noted, in order to maintain high economic growth, the government increased the stimulation of domestic demand through credit expansion.
 

The main tool to increase investments was directive lending of government programs through the banking system, including lending directly by the National Bank of Belarus. This policy was aimed to maintain economic growth and capital renewals of individual sectors of the economy. However, these programs of directive lending had also negative effects.The credit expansion has increased the aggregate demand, including for imported products because it was focused on the non-tradable sector (above all - housing). As a result, the balance of payments deteriorated significantly. The growth of the external debt reflects a large deficit of current account. For the last five years,the external debt has trebled and achieved 56% of GDP. The negative trend is a great volume of the short-term external promissory notes (exceeding 30 %). It is the additional risk in the conditions of today’s instability of the global financial markets.
 

The high economic growth rates (more than 7% annually since 2000) and the rapid growth of real incomes of the population (about 13% annually in 2000-2010) increased the imbalance of domestic consumer demands. In this case, since the mid-2000s, the productivity growth has slowed and the wage growth began to exceed productivity growth, which meant a loss of competitiveness of Belarusian products.
 

Thegovernmenttakesmeasurestostabilizeeconomy.For instance, the Development Bank was created to manage government programs on economy financing. The government also reduces the growth rate of lending through auditing of government programs and prioritizing of the spending of budget resources. In order to stabilize the balance of payments, the stimulation of domestic demand through non-market channels of credit is reduced. In 2009-2011, Belarus three times devaluated the national currency to strengthen competitiveness of domestic production in short-term prospect. The government raises the refinance rate, but until now it is substantially below the inflation rate.
 

Thus, the macroeconomic imbalances are still significant and the risk of slowdown of the economy is high.

Conditions for business

Since 2008, a number of measures leading to deregulation of the economy were implemented by the government. These include price liberalization, reduction of the number of goods subject to mandatory certification, elimination of a number of taxes, facilitationof the registration of legal entities, removal of unnecessary administrative barriers to business development. The procedure of allocation of land has been simplified. For example, the authority to allot land parcels was delegated to local government authorities and now land parcels are allocated through auctions. Approaches to private property and privatization have been altered.  Privatization is viewed as a way to attract strategic investors to Belarus.The investments could bring new high technologies and modern business management solutionsto Belarus, help to find new sales markets – everything that can make Belarusian businesses more effective.
 

In spite of some steps to economy liberalization that have been undertaken, directive methods of economic management still dominate in Belarus. This fact contributed significantly to the accumulation of structural imbalances in the Belarusian economy: the growing of current account deficit and additional external financing needs, the increasing dynamics of the trade balance deficit, deterioration of public finances, high inflation, dependence on the macroeconomic dynamics on some key industries, the deterioration of the competitiveness of Belarusian goods, low capitalization and underdeveloped financial system, etc. It is obvious that the further liberalization and the transition to market methods of regulation will facilitate the urgent structural reforms.
 

Summarizing the analysis of the economic situation in Belarus, it is possible to clarify the basic risks and advantages for investors and entrepreneurs.

The main risks:
• The strong government regulation
• High tax burden and complicated tax system
• High dependence on Russia 
• Essential progress in economic (WTO) and political integration (EU) in the near future isquestionable.
 

The strong positions and advantages:
• Skilled and low cost of labor force. According to the human development index in 2010, the country falls into the category of countries with high human development, holdingthe 61st place, the highest among the CIS countries;
• The level of administrative corruption in the country is lower than in other CIS countries, although still higher than in other middle-income group countries, to which belongs Belarus;
• Investors have good opportunitiesrelatedto the government privatization plans
• Relatively good infrastructure  and industry base  
• Creation  of the Customs Union and Common Economic Space with a large common market
• Close to the European market.